Ailing Asciano sees growth up ahead

Asciano
, owner of freight rail group Pacific National, said it would restructure into three divisions and target iron ore and mineral exporters for growth as it reported a $948 million loss for 2010.

The loss was due to more than $1 billion in previously announced impairment charges. In May, Asciano said it would write down the value of its Patrick Ports division by $1.11 billion to reflect increased competition and a more conservative approach towards valuing its assets after being forced into a $2 billion capital raising in 2009 to reduce its leverage.

Before impairment charges of $1.14 billion, Asciano reported a pre-tax profit of $187.8 million, and earnings before interest, taxation, depreciation and amortisation (and impairment charges) of $723.7 million, beating its own guidance.

The group also gave a positive outlook for fiscal 2011, telling investors it was comfortable with market consensus on EBIT of $578 million.

It hopes to boost growth by diversifying more heavily away from its core coal haulage business and transport greater amounts of other bulk commodities, such as iron ore and grain from Western ­Australia and minerals from South Australia.

As well as previously announced plans to refinance $2.25 billion in debt and simplify its corporate structure (including converting its stapled securities into shares), Asciano yesterday said it would restructure from four divisions into three: Patrick Ports, Pacific National Rail and Pacific National Coal.

The company claimed this would help investors better understand its businesses, and help it cut costs.

The group’s coal haulage operations will remain as a stand-alone business while its other freight haulage operations (which include transporting steel and manufactured goods) will be included with Pacific National Rail.

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Asciano’s coal division is its strongest performer, with EBIT up by 60 per cent to $139.5 million in 2010.

The group has been expanding outside of its traditional base in NSW into Queensland, where it is now hauling about 45 million tonnes of coal and has a 17 per cent share of the market. This includes 30 million tonnes of business taken from competitor and market leader QR National, according to Asciano chief executive
Mark Rowsthorn
.

Asciano aims to control 30 per cent of the Queensland market, or about 95 million tonnes, by 2015.

It expects half this growth will be organic, and half taken from ­competitors.

Asciano has no plans to compete on price but is trying to offer better service. It has an 80 per cent share of the coal haulage market in the Hunter Valley compared with 83 per cent to 84 per cent a year ago, and expects its share will drop to 75 per cent due to contracts lost to QR National.

Mr Rowsthorn said he did not know whether the Queensland government would proceed with its proposed float of all of QR National – which Asciano has argued would be “intolerable" due to its control over both freight and railroad tracks – later this year or whether it will end up selling its rail track assets for more than $5 billion to a consortium of miners. “Most people put it at 50-50 either way," he said.

Asciano’s application in May to the National Competition Council to have the use of Queensland’s coal railways “declared" under a part of the Trade Practices Act that ­governs access to nationally important assets was still being considered, but the company could receive an ­update in a month’s time, Mr Rowsthorn said.

If Asciano succeeds in its application, it would be given the legal right to negotiate ­access to the rail tracks, and could apply to the Australian Competition and Consumer Commission to arbitrate over disputes. The Queensland Competition Authority currently oversees access.

EBIT in the group’s intermodal business, which runs rail-haulage services across Australia, rose by 22.5 per cent to $132.1 million but containerised freight volumes fell by 5 per cent as lower consumer demand lessened the need for manufacturers to transport goods to retailers.

EBIT in the container ports division fell 9 per cent to $127.7 million due to the loss of contracts with shipping consortium Oceania Vessel Sharing Agreement (OVSA) to competitor DP World, and a drop in demand for port facilities during the global financial crisis.

The group’s share of the container ports market has fallen to 48.7 per cent over the past year from 52.7 per cent a year earlier, and expects to stabilise at about 50 per cent.

The proposed minerals resource rent tax, if imposed, would not have a material impact on Asciano, Mr Rowsthorn said.